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Homework answers / question archive / You are reviewing a capital project proposal

You are reviewing a capital project proposal

Finance

You are reviewing a capital project proposal. The project has an upfront cost of $1,810,000. The resulting positive cash flows over the next five years are: $595,000, $480,000, $540,000, $760,000, and $460,000. The company's required return on investment is 14%.

Instructions: Calculate the following:

a)  Net present value

b) Internal rate of return

c)  Discounted payback period 

d) Profitability index 

e)  Approve or reject project 

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a) Net present value (NPV) = 134649.45

b) Internal rate of return (IRR) = 17.04%

c) Discounted payback period = 4.44 years

d) Profitability index (PI) = 1.07

e) The project should be accepted because NPV is positive, IRR is greater than the required return & profitability index is greater than 1.

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